SIGNIFICANCE OF FDI FOR PAKISTAN:
1.
Provision of
capital:
Less developed countries are less
developed mainly due to the reason that they face shortage of capital. Same is
the case with Pakistan.It is unable to start valuable projects for stimulating economy’s
activities. MNC’s bring capital into the country so that it could be used for
utilizing country resources efficiently and help in the growth of the economy.
2.
Filling up of
saving investment gap
Foreign direct
investment fills the difference between the target investment and locally mobilized savings.
Consequently the country achieves the growth and development targets.
Stimulating
domestic investment:
Foreign direct investment fills
saving investment gap. As this gap fills up increased savings will result into
increase domestic investment as well.
4.
Capital
formation
Capital formation refers to increase in capital assets or stocks in
economy. When investment increases capital formation occurs which is very
important for the rapid growth of economy.
5.
Technology
transfer:
When MNC’s bring capital into the host
country they utilize it efficiently by using advanced technology .so transfer
of technology, its usage and adaptation becomes easier not only for the
particular company but also for domestic investors.
6.
Increase in
employment:
With the foreign workforce MNC’s also provide employment opportunity
to the local people of the host country
so that their income and living standard may increase.
7.
Managerial
skills and entrepreneurial ability:
When MNC’s start operating in another country(less developed) they operate their activities in their own
way. So the local employees would have opportunity to learn from their unique and effective managerial and marketing
skills and get benefit from their entrepreneurial abilities.
8.
Learning of
local enterprises:
It encourages the local enterprises to
invest more in development projects. The local entrepreneurs can adopt modern
methods of production of goods from the foreign investors.
9.
Access to
markets:
Developed countries have greater and easy access to the international
market. So with their help developing countries also get access to these
markets and start participating in international trade activities.
10.
Facilitates the utilization and
exploitation of local raw materials:
Due to shortage of capital, developing countries
are not able to fully or efficiently utilize their idle resources but due to
the incoming capital and better technology with efficient entrepreneurial
skills such countries idle resources would come into use.
11.
Increase in
GDP:
As GDP is the total final goods
and services produced in a year within the geographicalboundaries of the
country and it has nothing to do with nationality of its producers so GDP
increases with foreign investment.
12.
Boost in
exports:
Due to foreign direct investment production in the host country
increases due to which it becomes able to export the excess production and earn
foreign exchange.
13.
Fills foreign
exchange gap:
The FDI brings
foreign exchange in the country and fills gap between required foreign exchange
and those earned from exports.
14.
Increases govt.
revenue:
Taxes are the primary source of any country’s revenue. By foreign direct
investment revenues of government increases because the government levies tax
on projects operated with the private foreign investment.
15.
Industrialization
and development:
With the incoming capital, advanced
technology, more investment, capital formation and increased government
revenues boost the industrialization process in the economy which leads to the
production of quality goods and services.
16.Stimulates investment in R&D:
Research and development is important for any country’s development and
for raising its nation’s living standard. Foreign direct investment is also utilized
in research and development processes which also motivates local investors to
participate in this area.
Negative
effects:
Although FDI has its own importance
for Pakistan’s economy but it has certain negativity for the economy as well.
1.
Suppresses
local entrepreneurship
As mostly
foreign investors use superior knowledge and techniques of production so they
produce better quality of goods and drive out local competitors.
2.
Concentration
to only urban areas
The foreign investors they usually
prefer to invest in urban areas. Consequently the development projects
concentrate in urban areas. It increases the imbalance between the rural and
urban areas that leads to rural urban migration and increase civic problems in
the urban areas.
3.
Influence on
govt. policies
The foreign investors influence the
government policies using different tactics in their own favor which may
exploit the interests of local investors.
4.
Worse BOP
If the imported/incoming capital is
more expensive and earnings through exports is less, BOP of the country may get
worsen.
5.
Inappropriate
products:
As the private foreign investors come
through multinational companies, the MNC’s stimulate inappropriate consumption
patterns through advertising. They sometimes may also use capital intensive
techniques in production of goods and services that may lead to unemployment.
6.
Pollution
creation:
Due to greater foreign direct
investment as the process of industrialization boosts up, with finished goods
by-products will also produce which will pollute the environment.
DECLINE IN FDI
Significant deregulation and various
incentives/concessions are given
to
foreign investors, but Pakistan still faces serious problems as far as
implementation of foreign investment policies are concerned. Due to weak
policies and inappropriate implementation.
Reasons for decline in FDI:
1. Global economic recession:
It has caused many developed countries to
cut their capital expenditure and reduce FDI. Crisis originated in developed
countries are indirectly affecting the FDI flow in our country. FDI flow into
our country is less than 1% of its made globally.
2. Political instability:
Political stability is essential to attract
foreign direct investment because it creates confidence for private foreign
investors. Unfortunately the political condition in Pakistan is not
satisfactory. Frequent changes in government bring changes in policies which
make difficult for foreigners to adopt abruptly.
3. Weak law and order:
Unsatisfactory law and order situation is making investment in Pakistan
unattractive for foreigners. When their
capital and the personnel is not safe they won’t consider investing in our
country. Our major industrial and commercial center, Karachi is facing chaos.
Law and order situation in Punjab and other provinces is also not satisfactory.Terrorists
attacks have made the situation even more worsen.
4. Power, gas and water shortage:
Industries run through power, use of gas is a must and here in Pakistan
these resources are not provided in adequate quantity. This is due to
inefficiency of the local government. Dams in our country are also not enough
to supply the adequate quantity of water to the economy which creates problem in industries set up and their
working.
5. Inadequate infrastructure:
Pakistan compares unfavorably in infrastructure facilities with other
developing countries that have attracted higher levels of foreign investment.Pakistan
has only 18% of paved roads in good condition as against 50% in Thailand, 31%in
Philippines, and 30% in Indonesia. Pakistan has extensive network of railway
but it is also poorly managed. Telecommunication is another bottleneck. There
are only 10 telephones per 1,000 persons in Pakistan compared with 31 and 112
in Thailand and Malaysia, respectively.
6. Untrained labour force:
Pakistan is suffering from the shortage of technically trained and
educated labour. Pakistan is at a more serious disadvantaged position in terms
of education and health compared with other countries that have attracted FDI
at much higher levels. As the labour conditions are not fit so FDI is
decreasing in our country.
Suggestions
1.
Limits on
profit repatriation
2.
Local partners:
The host country may insist that the
foreign investors take local investors as their partners so as to increase
local influence over production and distribution patterns of the foreigners.
3.
Export
requirements:
It may also be binding for the MNC’s
that only certain portion of their output is to be exported, major should be
supplied in local markets.
4. Increasing government efficiency:
·
Government should try its best to strengthen law and
order situation in the country. It should make strong appropriate policies to
attract foreign investors.
·
It should lessen its personal expenditures and pay
special attention to infrastructure building.
·
Literacy rate needs to be raised up; more technical
institutions should be established to polish the technical skills of the
workers.
